Chiquita, Fyffes merger means impact for breakbulk reefer

The announcement Monday that two big fruit companies -- Charlotte, N.C.-based Chiquita and Dublin, Ireland-based Fyffes -- plan to merge also means that two of the top 10 operators of conventional breakbulk reefer ships will combine.
The Netherlands-based consulting firm Dynamar 2013 report, Reefer Analysis: Market Structure, Conventional, Containers, ranks Chiquita’s Great White Fleet subsidiary as the eighth largest operator of conventional reefer ships with 5.9 million cubic feet on 10 ships, and Fyffes/Geest as the 10th largest, having 4.6 million cubic feet on eight ships. Dynamar said the companies have 2.8 percent and 2.2 percent of the capacity share, respectively. Conventional reefer ships often also carry reefer containers on deck.
In addition to moving its own fruit to consuming markets, Great White Fleet also “transports third-party cargo on return trips, primarily from North America and Europe to Latin America, to reduce ocean transportation costs.”
Chiquita’s 2013 10-K annual report filed with the Securities and Exchange Commission says the company has eight refrigerated ships and three container ships on lease through the middle of 2014, with options for up to an additional five years. It says it also has five additional cargo ships (three refrigerated and two containerized) under lease without extension options, with three of these scheduled to expire in late-2014 and two in late-2016. Chiquita also said about 3 percent of its ocean shipping needs was accomplished with spot charters in 2013.
Chiquita said it leases “more than 14,000 containers and approximately 3,000 to 4,000 generator sets and chassis used for inland transportation of these containers. These leases range from five to eight years and are used for both ocean and ground transportation of bananas, other produce and other cargo. Container leases typically contain extension and purchase options at the end of the lease.”
Dynamar notes that some carriers have been switching from the use of conventional breakbulk reefer ships to reefer containers to move their products.
“Generally, the parent companies appear to be happy with their shifts to the reefer box such as Chiquita, claiming to have saved $12 million a year and Fyffes saying to have achieved significant cost savings and improved efficiencies,” said Dynamar. “Such comments do not bode well for the future of conventional reefer shipping, in particular where it concerns the brand-operators (fruit traders).
In 2013, Dynamar said Great White Fleet terminated its own Ecuador/Guatemala-Hueneme container service in favor of chartering space on a container service operated by CCNI/CSAV/Hamburg Süd box service.
Dynamar also said that in 2011-12, Great White Fleet replaced three conventional reefer vessels on the Guayaquil-Port Hueneme run with cellular tonnage.
Best known for their involvement in the banana business, Chiquita and Fyffes also sell other sorts of fruit, including pineapples and melons.
Chiquita notes in its annual report that, “Beginning in 2013, pineapples, sourced primarily from Costa Rica, are purchased under annual or multi-year contracts from third party growers in the same regions were we produce and purchase bananas. Shipment of pineapples helps to reduce any excess ocean shipping capacity from our banana business because they are sourced in the same regions.”
Dynamar estimates that “at the last five years’ pace and age of scrapping, and assuming no substantial new orders, conventional reefer capacity will come down to around 100 million cubic feet in 10 years’ time. This is less than half the present space and translates into some 320 conventional reefer ships by 2023.”
In its annual report, Chiquita takes pains to emphasize the importance of shipping and logistics to its operations.
“Due to their highly perishable nature, bananas must be brought to market and sold generally within 30 to 40 days after harvest. This requires efficient logistics processes for loading, unloading, transporting and delivering fruit from the farm to the outbound port, from the source country to the market country, and from the inbound port to the customer,” said Chiquita.
“Bananas are harvested while still green and are subsequently ripened. To control quality, bananas are ripened under controlled conditions. We have a proprietary low-temperature ripening process, a technique that enables bananas to begin the ripening process in shipping containers during transit, and thereby reduce the amount of inland ripening capacity required. We also operate pressurized ripening rooms in Europe and North America to complete the ripening process and may assist our customers who operate their own pressurized ripening rooms. We believe our service provides value to customers through improved fruit quality, longer shelf-life, lower inventory levels and lower required investment,” said Chiquita.
It notes that bunker fuel is an important component of transportation costs and has been volatile. Chiquita said it manages the volatility of fuel with “forward contracts to lock in prices of up to three-fourths of our core European usage for up to three years. However, these hedging strategies do not fully protect us against continually rising fuel prices, and they can result in losses when market prices for bunker fuel decline, although we expect that any losses on our forward contracts from declines in market prices would be less than the decline in cost of bunker fuel purchases.”